Before, Sustainable Investing was accelerating. Now it’s becoming mainstream
The Covid-19 pandemic has brought into sharp focus the immediate economic realities for governments and businesses alike. This might have led wealthy families to prioritise investment returns (financial capital) over considerations for the planet and society as a whole (social capital).
In fact, 83% of respondents to our most recent Four Pillars survey who apply ESG principles to their investments have not altered their approach despite the devastating impact of Covid-19. We also know from this and prior research that a significant proportion of our clients wants to reflect their values in their portfolio. This is particularly interesting when you consider that, to the untrained eye at least, you could presume our clients to be inclined to prioritise returns over values.
The reasons for this commitment to ESG investing are broadly to do with education, lessons learned from previous economic shocks and a greater awareness of what not investing sustainably will do to our planet, its people and its wildlife.
The coronavirus pandemic has many similarities with the Global Financial Crisis (GFC) of 2008. Then, like now, governments responded to the crisis with similarly extreme economic and fiscal stimulus measures. This, in many cases was followed by austerity programmes, which saw dramatic cuts in public spending. In the 12 years since, there have been in increasing concerns about the growing inequalities in society including around job security, health and education.
Today, experts are warning that the coronavirus will set back the efforts made by governments and investors to redress the balance in creating a fairer more sustainable world. A July 2020 UN report found that Covid-19 is reversing decades of progress on poverty, healthcare and education. The global effort to achieve the 17 UN Sustainable Development Goals by 2030 was already behind by the end of 2019. Now, the pandemic has let loose an unprecedented, largely unforeseeable, crisis – with the world’s poorest and most at risk the worst affected.
This crisis, though, is different to the GFC. Firstly, people don’t view the Covid-19 crisis as a bailing-out of bankers (to the tune of trillions of taxpayers’ cash) for a problem created by bankers themselves. The Covid pandemic – to a greater or lesser extent – is viewed as no one’s fault and everyone’s problem. The result is that people are more inclined to want to help tackle the problems highlighted by the virus – like increased social inequality – as well the immediate effects of the virus itself.
53% of survey respondents registered an increased awareness of how they might deploy their social capital and are thinking about what to do or that are already actively doing so. It is easy to see how those comparing the situation today to the GFC might feel differently as to how they might be able to help.
What the survey’s 83% sticking with ESG principles for their investments despite the impact of Covid tells us is that having a voice on, say, social inequality via investment, while previously considered ‘niche’ is now becoming mainstream. Where once, taking a stand on climate change or world poverty was thought to be the preserve only of left wing radicals, it is now on everybody’s agenda – top of the agenda, indeed, in many board rooms around the globe.
Wealthy families are part of this. They are starting to embrace the idea of a global community and being more mindful of the resources that they use, and how they can use their capital for good, to influence the way companies behave.
Our survey was distributed in May, just after the peak of the pandemic. Respondents had been able to observe the panic that people were feeling. Most had also experienced lockdown and were answering the survey from a more thoughtful place, with an eye firmly on the future.
Some commented that the next generation of their families is “more interested in social impact investments” and that there is a “general trend towards increasing exposure to sustainable strategies and ensuring that investment managers incorporate ESG strategies” into their processes.
While we have heard from clients and recorded similar comments in previous Four Pillars surveys, investing sustainably has itself become established. The pandemic has accelerated its course and ‘ESG investing’ is simply becoming ‘investing’. It is a new normal.
This is reflected in the decisions families have been making in their personal lives. Trends have accelerated here too, be it responsible travel, electric vehicle usage, managing your body weight for health, better hygiene and healthcare and so on.
The pandemic has given everybody the opportunity to step out of their daily lives and take stock of what they do, how they do it and what resources they use and how they want to step forward into the future.
For businesses, a sudden redefinition of vision accompanied by a redeployment of time, energy, and resources may be very well meaning, but it won’t guarantee businesses a free pass into the ESG club. Inventors will have to stick to their investment principles to filter out any tokenism. There is no substitute for proper due diligence and investors will need to go through the investment process and portfolio holdings line by line. There is no other way to be confident that companies are genuinely doing the right thing with their investors’ capital.
For families, agreeing a social capital strategy will also form the basis of any conversations with their investment teams. By agreeing upfront a purpose for their family’s wealth, leaders should be able to manage the flow of that purpose through everything a family does.
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